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The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model

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  • Javier Gomez Biscarri

    (IESE Business School)

  • Germán López Espinosa

    (Universidad de Navarra)

Abstract

We analyze the effect of cross-country differences in accounting standards on the empirical performance of financial pricing models. We show how the lack of uniform accounting standards across countries generates inconsistent estimates of the model parameters, and leads to rejection of the validity of the model. As an empirical application, we analyze how differences in accounting standards affect the performance of the Fama-French (1993) three-factor pricing model. We show that the F-F model is accounting-specific: it works better the more homogeneous the data are in terms of accounting standards. This result has an important empirical corollary: the model accounts extremely well for the cross-country returns of firms following IASB standards.

Suggested Citation

  • Javier Gomez Biscarri & Germán López Espinosa, 2007. "The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model," Faculty Working Papers 13/07, School of Economics and Business Administration, University of Navarra.
    • Handle: RePEc:una:unccee:wp1307
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    Cited by:

    1. Gomez Biscarri, Javier & Lopez Espinosa, German, 2008. "The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model," Journal of Multinational Financial Management, Elsevier, vol. 18(4), pages 369-388, October.
    2. Susana Callao & José I. Jarne & David Wróblewski, 2019. "A New Perspective on Earnings Management in Emerging European Countries: Investigation on Environmental Factors that Explain Differences in Earnings Management," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 7(2), pages 59-81.

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    More about this item

    Keywords

    Accounting systems; international valuation and comparisons; IASB accounting;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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